Alternative Environmental Policy Instruments Research Articles

Which policy instrument do citizens and civil servants prefer? A choice experiment on Swedish marine policy

Abstract In the choice between alternative environmental policy instruments, economists tend to favor policies capable of attaining cost-efficiency, but other considerations may be more important to stakeholders. We perform a choice experiment modeled on Swedish water and marine policy to estimate preferences for different policy instruments among citizens and municipal civil servants. Both the modal citizen and the modal civil servant prefer direct regulation and subsidies to nutrient trading. Moreover, nutrient trading is unlikely to deliver sufficiently large cost savings for civil servants to prefer it to other instruments. These results are consistent with the apparent reluctance to adopt water quality trading in Europe.

Improving the energy efficiency of buildings: The impact of environmental policy on technological innovation

This paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy efficiency in buildings. The empirical analysis focuses on three main types of policy instruments, namely regulatory energy standards in buildings codes, energy taxes as captured by energy prices and specific governmental energy R&D expenditures. Technological innovation is measured using patent counts for specific technologies related to energy efficiency in buildings (e.g. insulation, high-efficiency boilers, energy-saving lightings). The estimates for seven European countries over the 1989–2004 period imply that a strengthening of 10% of the minimum insulation standards for walls would increase the likelihood to file additional patents by about 3%. In contrast, energy prices have no significant effect on the likelihood to patent. Governmental energy R&D support has a small positive significant effect on patenting activities.

Improving the Energy-Efficiency of Buildings: The Impact of Environmental Policy on Technological Innovation

This paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy-efficiency in buildings. The empirical analysis focuses on three main types of policy instruments, namely regulatory energy standards in buildings codes, energy taxes as captured by energy prices and specific governmental energy R&D expenditures. Technological innovation is measured using patent counts for specific technologies related to energy-efficiency in buildings (e.g. insulation, high-efficiency boilers, energy-saving lightings). The estimates for seven European countries over the 1989-2004 period imply that a strengthening of 10% of the minimum insulation standards for walls would increase the likelihood to file additional patents by about 3%. In contrast, energy prices have no significant effect on the likelihood to patent. Governmental energy R&D support has a small positive significant effect on patenting activities.

Costs of Alternative Environmental Policy Instruments in the Presence of Industry Compensation Requirements

This paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution-related industries be compensated for potential losses of profit from the pollution regulation. Using analytically and numerically solved equilibrium models, we compare the incidence and costs of emissions taxes, fuel (intermediate input) taxes, performance standards and mandated technologies in the absence and presence of this compensation requirement. Compensation is provided either through industry tax credits or industry-specific cuts in capital tax rates. We decompose the added costs from the compensation requirement into (1) an increase in intrinsic abatement cost, reflecting a lowered efficiency of pollution abatement, and (2) a lump-sum compensation cost that captures the efficiency costs of financing the compensation. The compensation requirement affects these components differently, depending on the policy instrument involved and the required extent of pollution abatement. As a result, it can change the cost-rankings of the different instruments. In particular, when compensation is provided through tax credits, the lump-sum compensation cost is higher under the emissions tax than under the command-and control policies (performance standards and mandated technologies) - a reflection of the higher compensation requirements under the emissions tax. When the required pollution reduction is modest, imposing the compensation requirement causes the emissions tax to lose its status as the least costly instrument and to become more costly than command and control policies. In contrast, when required abatement is extensive, the emissions tax again becomes the most-cost effective instrument because of its advantages in terms of lower intrinsic abatement cost.

Costs of alternative environmental policy instruments in the presence of industry compensation requirements

This paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution-related industries be compensated for potential losses of profit from the pollution regulation. We apply a numerically solved general equilibrium model to compare the incidence and costs of emissions taxes, fuel (intermediate input) taxes, performance standards and mandated technologies in the absence and presence of this compensation requirement. Compensation is provided either through industry tax credits or industry-specific cuts in capital tax rates. We analyze the added costs from the compensation requirement in terms of (1) an increase in “intrinsic abatement cost,” reflecting a lowered efficiency of pollution abatement, and (2) a “lump-sum compensation cost” that captures the efficiency costs of financing the compensation. The compensation requirement affects these components differently, depending on the policy instrument involved and the required extent of pollution abatement. As a result, it can change the cost rankings of the different instruments. In particular, when compensation is provided through lump-sum tax credits, the lump-sum compensation cost is higher under the emissions tax than under the command-and-control policies (performance standards and mandated technologies) — a reflection of the higher compensation requirements under the emissions tax. When the required pollution reduction is modest, imposing the compensation requirement causes the emissions tax to lose its status as the least costly instrument and to become more costly than command-and-control policies. In contrast, when required abatement is extensive, the emissions tax again becomes the most cost-effective instrument because of its advantages in terms of lower intrinsic abatement cost.

Game theory and global environmental policy

Economists interpret global environmental quality to be a pure public good. Each country should contribute to its provision. However, this is hard to achieve because each government is tempted to take a free ride on the other governments’ efforts. Not only has this dilemma been analysed with game theoretical methods but game theory has also been used to think about how to make amends. This paper reviews the game theoretical discussion on how international policy frameworks may be designed to improve the chances for international cooperation. It is also shown that the evaluation of alternative environmental policy instruments deviates from the standard environmental economics model if applied to the international arena. For the benefit of an interdisciplinary readership, the evolution of the debate on global environmental policy is related to the recent history of economic thought. This history is taken to be materialised in the writings of economics’ Nobel Prize laureates.

On the implications of technological innovation for environmental policy

This paper draws on a number of recent studies to shed light on several policy issues raised by the impact of environmental policies on technological innovation. First, to what extent does induced innovation raise the overall net benefits to society from environmental policies? Second, how does induced innovation affect the appropriate choice among alternative environmental policy instruments? Third, how does it affect the optimal stringency of environmental regulations? Fourth, should environmental policies be supplemented with additional policies to promote innovation, such as research contracts or prizes for new technologies?

Alternative Environmental Regulation Schemes for the Belgian Power Generation Sector

This paper discusses the effects of alternative waysof using external cost estimates to regulateinvestments and generation in the electricityproduction sector. Starting from the existing system,four alternatives are considered: emission taxes forthe utility and for independent producers, emissiontaxes limited to the electric utility, emissionpermits limited to the electric utility and finally asystem where only investments are regulated, anddispatch is not. Taking external damage estimates fromthe literature, these alternatives are compared usinga dynamic partial equilibrium model of the Belgianelectricity market for the period 1995–2034. Theefficiency and distribution effects of the alternativeenvironmental policy instruments are quantified.

Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion

We develop a framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology. "Market-based" and "command-and-control" approaches can he quantitatively compared by estimating the economic penalty that firms, through their actions, reveal to be associated with violation of standards. In the context of concerns about global climate change, we empirically examine the likely effects of Pigouvian taxes, technology adoption subsidies, and technology standards. We employ state-level data on the diffusion of thermal insulation in new home construction, comparing the effects of energy prices, insulation cost, and building codes.

Environmental-economic policy assessment: A farm economic approach

Increasing environmental problems in agriculture urge policy-makers to develop instruments to reduce and control the pollution caused by current intensive farming practices. These measures should be both effective from the ecological point of view, which is a public goal, as well as acceptable at the farm level with regard to private goals such as income and continuity at the farm. Therefore, information is required concerning the complex interaction of production intensity, environmental aspects and farm income. This paper concerns extension of the linear programming optimization models employed in farm economics with an environmental component to analyze and evaluate the effects of alternative environmental policy instruments for agriculture. The application presented concerns the potential role of technical innovations and of input levies to reduce biocide use in crop production.